This dissertation consists of three chapters. The first chapter addresses the role of housing market dynamics in explaining the choice of public education finance systems at the state level. The second chapter assesses the effects of increased levels of state involvement in public education finance on total amount of resources for public schools by taking into account the differences in state aid formulae. The third chapter examines the relationship between spending per pupil in public schools and demographic characteristics of the population.
In the first chapter, I analyze the welfare effects of different public education finance systems. Specifically, I show that the public education finance system that decreases intrastate spending inequality by setting a minimum spending per pupil, Foundation, would be chosen over the system that sets a guaranteed tax base for every district, Power-Equalizing, if they were subject to a majority voting. The main mechanism behind this is that higher property tax rates under a Power-Equalizing system compared to a Foundation system lead to lower housing wealth for the majority in the former. The model suggests that a high preference for education in the utility function, lower mean income in a state, and lower income inequality in a state results in a Foundation system being chosen by a majority. Finally, I provide suggestive evidence supporting these theoretical results.
In the second chapter, I quantitatively address the effects of increased levels of state involvement in public education finance in the U.S.. By using district level data on K-12 public education finance, income and demographic composition in 2008, I conclude that state governments redistribute from wealthier districts to poorer districts. Local authorities, however, respond to the centralization of public education finance systems by decreasing their contributions. Thus, every dollar increase in state aid increases total expenditures by less than one dollar. Using the categorization of Jackson et al. (2014), I argue that the effect of state funds on total expenditures is different for different state aid formula types. In states with standard equalization plans and local effort equalization plans, a dollar increase in state aid increases total expenditures by as little as 35 cents. In states with minimum foundation plans, in contrast, a dollar increase in state aid increases total expenditures by as much as 70 to 83 cents.
In the third chapter, I explore the underlying demographic factors that leads into a stronger preference for public education. Previous studies suggest that lower share of elderly, higher share of school age children, and higher share of college graduates in the population result in a higher level of spending per pupil in public schools. However, the existing literature does not take into account the differences in state aid formulae. This is important given that these formulae differ and they have direct effects on levels and dispersion of spending in the districts. My analysis suggests that the type of state aid formula affects the relationship between demographic characteristics and spending per pupil in public schools. Specifically, the effects of these three variables on public education expenditures are bigger in the states with Minimum Foundation plans compared to Equalization and Local Equalization plans. This is a direct result of the latter two state aid formulae being more centralized compared to Minimum Equalization plans. While they control for spending inequality at a higher degree, public education finance system in the state becomes more centralized which leads into a weaker relationship between each of these demographic variables and spending levels in the districts. These results are also seem to be robust to the type of the public education finance reform of the state.